GM General Motors Company

By Mike Spector 

General Motors Co. agreed to pay a $1 million penalty to settle charges from U.S. securities regulators that the Detroit auto giant failed to alert its accountants to a defective ignition switch in a timely manner, preventing them from evaluating the likelihood of a recall or potential financial losses.

GM, without admitting or denying the charges, agreed Wednesday to a Securities and Exchange Commission order finding the auto maker violated federal law by "not devising and maintaining a sufficient system of internal accounting controls," the agency said.

GM recalled roughly 2.6 million older vehicles in early 2014 with defective ignition switches that risked slipping from the run position and disabling safety features including air bags despite having internal evidence of the problem for more than a decade. The auto maker, which has admitted to the safety failure and undertaken reforms, has previously reached settlements with the U.S. Justice Department, shareholders and thousands of consumers totaling more than $2 billion.

The settlement didn't question any current or past GM financial statements or disclosures, the company said.

"Since the ignition-switch recall, GM has been proactively and successfully resolving ignition switch issues with customers and regulators at both the state and federal level," GM said.

The company added that it reorganized vehicle engineering teams to spur better transparency, urgency and accountability, and has launched a program encouraging customers and suppliers to speak up about possible safety issues.

GM didn't notify company accountants of an internal probe of the ignition switch defect until November 2013 despite others at the auto maker knowing of a safety issue in spring of 2012, the SEC said. When "loss contingencies" such as a possible recall arise, accounting guidance required GM to assess the likelihood of a recall, and then provide an estimated loss stemming from the issue or provide a statement that such an estimate couldn't be made. Since accountants weren't notified, they didn't properly undertake the assessment for at least 18 months, the SEC alleged.

The result is that required work wasn't performed in preparing financial statements that are later disclosed to investors, the SEC found.

"Proper consideration of loss contingencies and assessment of the need for disclosure are vital to the preparation of financial statements that conform with Generally Accepted Accounting Principles," said Andrew Calamari, director of the SEC's New York regional office.

GM ultimately accrued $41 million in December 2013 for estimated costs of the ignition-switch recall, which wasn't material to the auto maker's financial results, a spokesman said.

Write to Mike Spector at mike.spector@wsj.com

(END) Dow Jones Newswires

January 18, 2017 12:31 ET (17:31 GMT)

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